Meltdown 101: The cash for clunkers program

KEN THOMASAssociated Press Writer

Published Saturday, July 25, 2009

Q&A

WASHINGTON -- Got an old gas guzzler in the garage? Car shoppers can take advantage of new government incentives worth $3,500 to $4,500. Owners can scrap their clunker in exchange for a new, more fuel-efficient vehicle, and lop off thousands of dollars from the sticker price. Congress approved the "Car Allowance Rebate System," or "CARS," program last month to boost auto sales and attempt to retire some inefficient cars and trucks. Here's a look at the program:

Q: Which vehicles qualify?

A: Cars and trucks must be 1984 models or newer to be eligible for a trade-in rebate. They must get 18 miles per gallon or less in combined highway/city rating -- based on the "Estimated New EPA MPG" ratings available at www.fueleconomy.gov. The vehicle needs to be drivable, insured and licensed for at least a year -- so forget about buying a clunker this summer for $500 and "flipping" it through the program. Violators face penalties if they submit false information.

Q: How do I qualify for the incentives?

A: For passenger cars, consumers can get $3,500 if the new vehicle gets at least 4 mpg more than the trade-in and $4,500 if the new vehicle gets at least 10 mpg more than the trade-in. For sport utility vehicles, pickup trucks or minivans, owners can get a $3,500 rebate if the new vehicle gets at least 2 mpg higher than the old vehicle. The rebate improves to $4,500 if the new vehicle gets at least 5 mpg higher than the trade-in. Large work trucks weighing at least 6,000 pounds can also qualify for rebates of $3,500 to $4,500.

Q: Can I buy any kind of vehicle through the program?

A: This won't subsidize a new Ferrari. The new vehicle needs to meet the fuel-efficiency requirements and have a manufacturer's suggested retail price of less than $45,000. It can be a domestic or foreign model. Used car purchases are not allowed under the program.

Q: Can I get the clunker rebate plus the value of my trade-in?

A: No.

Q: My old car or truck is worth more than $4,500. Should I use this program?

A: Probably not. The program essentially guarantees a minimum trade-in for a vehicle. So someone with an old beater valued at $1,000 that meets the mileage requirements stands to gain the most. Any prospective buyer with an old car worth more than $4,500 should probably trade it in for a new one. But many automakers and dealerships are offering additional incentives, so it's worth talking to your dealer.

Q: What happens to my old vehicle?

A: The trade-in vehicle will be scrapped. Dealers are required to use a government-approved salvage facility for the vehicle disposal. Vehicles need to be shredded or crushed within six months.

Q: What do I need to do to participate?

A: Go to your local car dealer. Dealer registration for the program began Friday. Owners need to bring their vehicle, title, proof of registration and proof of insurance.

Q: How will this program affect other dealer and manufacturer incentives?

A: Dealers must use the rebate in addition to -- instead of as a substitute for -- other rebates and discounts available to consumers. Many automakers are combining internal incentives with the government rebates to lure customers to showrooms. For example, Chrysler is offering $4,500 in cash toward the purchase of a new vehicle. Dealers are also required to disclose the best estimate of the salvage value of each vehicle.

Q: Does any money change hands?

A: No. If a consumer qualifies for a government rebate, the amount of the rebate is deducted from the vehicle's sticker price and the dealer is later reimbursed by the National Highway Traffic Safety Administration.

Q: How many clunkers are expected to be traded in through the program and how much will it cost the government?

A: The program will cost $1 billion to remove about 250,000 vehicles from U.S. roads. It's unclear if Congress will seek more money later this year. Some lawmakers, led by Sen. Dianne Feinstein, D-Calif., have said if Congress provides more funding, the program should require consumers to buy vehicles with higher fuel-efficiency than the current program's requirements.

Q: How long does the program last?

A: It ends on November 1 or when the $1 billion in funding runs out. Jack Nerad, executive market analyst for Kelley Blue Book, makes this suggestion: "I would look to see if I qualify right away. A lot of people won't qualify" because of the specific requirements. Nerad said automakers may offer additional incentives before the program ends.

Q: Where can I find more information?

A: Visit the government's CARS Web site http://www.cars.gov/ or call the government hot line at (866) CAR-7891. Auto companies and Web sites such as Edmunds.com http://www.edmunds.com/cash-for-clunkers, Kelley Blue Book http://www.kbb.com/kbb/cash-for-clunkers/default.aspx and AutoTrader.com http://www.autotrader.com/cash-for-clunkers.jsp have compiled additional details and eligible vehicle lists for consumers.